Secondary sanctions : a weapon out of control? The international legality of, and european responses to, US secondary sanctions

S

S

: A W

C

? T

I

L

OF

,

E

R

, US S

S

By T^{O M} R^{U Y S}* ^{A N D} C^{E D R I C} RY N G A E R T* *

ABSTRACT

The US is increasingly weaponizing economic sanctions to push through its foreign policy agenda. Making use of the centrality of the US in the global economy, it has imposed ‘secondary sanctions’ on foreign firms, which are forced to choose between trading with US sanctions targets or forfeiting ac- cess to the lucrative US market. In addition, the US has penalized foreign firms for breaching US sanctions legislation. In this contribution, it is argued that the international lawfulness of at least some secondary sanctions is doubtful in light of the customary international law of jurisdiction, as well as conventional international law (eg, WTO law). The lawfulness of these sanc- tions could be contested before various domestic and international judicial mechanisms, although each mechanism comes with its own limitations. To counter the adverse effects of secondary sanctions, third states and the EU can also make use of, and have already made use of, various non-judicial mechanisms, such as blocking statutes, special purpose vehicles to circumvent the reach of sanctions, or even countermeasures. The effectiveness of such mechanisms is, however, uncertain.

Keywords: secondary sanctions, extraterritoriality, jurisdiction, international economic law, United States, European Union.

*Professor of Public International Law, Ghent University, Ghent Rolin-Jaequemyns International Law Institute, [email protected].

**Professor of Public International Law, Utrecht University, RENFORCE research programme, [email protected].

The authors would like to extend their gratitude to the European Central Bank (ECB), which has been so kind as to fund the research that informs this article through its Legal Research Programme (2019). Earlier drafts of this paper were presented during an expert seminar at Utrecht University, as well as during a meeting with the ECB Legal Service. The authors wish to thank the participants at both events, and the two anonymous reviewers, for their feedback. The paper was finalized in December 2019, with a minor update undertaken in May 2020.

. . . . The British Yearbook of International Law(2020), Vol. 0 No. 0, 1–116

This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribu- tion, and reproduction in any medium, provided the original work is properly cited.

doi:10.1093/bybil/braa007

. . . .

Downloaded from https://academic.oup.com/bybil/advance-article/doi/10.1093/bybil/braa007/5909823 by Ghent University user on 22 September 2020

I. INTRODUCTION

II. SECONDARYSANCTIONS: DEFINING THECONCEPT

III. THE LEGALITY OF SECONDARY SANCTIONS AND THE CUSTOMARY

INTERNATIONAL LAW OFJURISDICTION

(A) Secondary sanctions as access restrictions

(B) Secondary sanctions going beyond access restrictions 1. US corporate control and the nationality principle

2. Prohibiting re-exportation of US items under the nationality principle

3. ‘Territorial’ use of the US financial system

4. A private cause of action for trafficking in US property:

Reliance on passive personality?

5. Justifying secondary sanctions under the protective principle 6. Anti-evasion as a jurisdictional ground

(C) Concluding observations

IV. INTERNATIONAL LEGALITY OF SECONDARY SANCTIONS UNDER

CONVENTIONAL LAW

(A) International monetary law: Secondary sanctions as restrictions on payments

(B) Secondary sanctions and WTO law

1. National treatment and most-favoured nation treatment 2. The prohibition of quantitative restrictions

3. Other potential breaches of WTO law (C) Potential breaches of bilateral instruments (D) Provisional conclusion

(E) The security exception as an impenetrable line of defence for sanctioning states?

1. Security exceptions in bilateral investment treaties and friend- ship, commerce, and navigation treaties

2. Security exceptions in the WTO Agreements 3. Implications in the secondary sanctions context

V. JUDICIALCHALLENGES TO THEWIDEREACH OFUS SECONDARYSANCTIONS

(A) Judicial challenges before US courts (B) Judicial challenges at the international level

1. International dispute settlement on the basis of the WTO Agreements, friendship, commerce, and navigation treaties, or bilateral investment treaties

2. Circumventing the security exception: What alternatives?

a. The advisory jurisdiction of the International Court of Justice

b. Contentious litigation on the basis of the post-WWII Economic Cooperation Agreements

VI. CHALLENGING US SECONDARY SANCTIONS THROUGH NON-JUDICIAL

MEANS: THEEU BLOCKING STATUTE

(A) The compliance prohibition 1. Compliance authorization

2. Direct enforcement under public law

3. Incidental enforcement by courts hearing contractual disputes 4. Deterrence

(B) Clawback

(C) Directly challenging US secondary sanctions before European courts:

The hurdle of state immunity (D) Concluding observations

VII. CHALLENGING US SECONDARY SANCTIONS THROUGH NON-JUDICIAL

MEANS: OTHEROPTIONS

(A) Boosting the position of the euro

(B) Facilitating international transactions by means of a special purpose vehicle (C) A European Office of Foreign Assets Control

(D) Retaliatory measures VIII. CONCLUDINGOBSERVATIONS

I. INTRODUCTION

Lately, the US has increasingly been ‘weaponizing’ economic sanctions to push through a foreign policy agenda.¹Making use of the centrality of the US in the global economy, it has forced foreign states and their firms to choose between halting trade with US sanctions targets or forfeiting access to the lucrative US market. In addition, the US has not shied away from slapping huge fines on foreign firms present in the US that route payments to sanctions targets through the US financial system.² While US reliance on economic sanctions as a foreign policy tool is hardly novel,³ the US has recently made much more aggressive use of them to project US power abroad.⁴Most eye-catching have been the re- instatement of US sanctions against Iran in 2018⁵and the strengthening of the Cuba boycott,⁶however US sanctions are set to grow even more.

Just as this article was finalized, for instance, President Trump signed into law an act imposing sanctions on persons involved in the construc- tion of the Nord Stream 2 gas pipeline, which will transport natural gas from Russia to the EU.⁷

1 See also E Geranmayeh and M Lafont Rapnouil, ‘Meeting the Challenge of Secondary Sanctions’ in M Leonard and J Shapiro (eds),Strategic Sovereignty: How Europe Can Regain the Capacity to Act(European Council on Foreign Relations 2019). Such sanctions go beyond multilat- erally agreed sanctions that are normally promulgated by the UN Security Council.

2 See Part II.B.3.

3 See, notably, Cuban Liberty and Democratic Solidarity (Libertad) Act 1996, 22 USC §§ 6021–91 (Helms-Burton Act) and Iran and Libya Sanctions Act 1996, 50 USC §§ 1701ff.

4 ‘Weapons of Mass Disruption: America is Deploying a New Economic Arsenal to Assert its Power’The Economist(6 June 2019).

5 See, notably, ‘Reimposing Certain Sanctions with Respect to Iran’, Exec Order No 13,846, 83 Fed Reg 38,939 (7 August 2018).

6 Notably the reactivation of Title III of the Helms-Burton Act by President Trump in 2019: J Gabilondo, ‘No Oligarch Left Behind: Trump’s Title III Cuba Policy’ (Just Security, 3 June 2019)

<www.justsecurity.org/64385/no-oligarch-left-behind-trumps-title-iii-cuba-policy/>.

7 Section 7503 of the National Defense Authorization Act for the Fiscal Year 2020, S.1790, 116^thCongress (2019–2020) and Protecting Europe’s Energy Security Act of 2019, S.1441, 116^th Congress (2019–2020), providing for a visa ban and asset freeze for persons involved in ‘the provi- sion of certain vessels for the construction of Russian energy export pipelines’. See for a critical view: S Sultoon, ‘US Congress Would Undermine Transatlantic Alliance with Nord Stream 2

US sanctions do not only govern economic relations between the US and the target state (‘primary sanctions’), but also relations between third states and target states (‘secondary sanctions’). These secondary sanctions do not just aim to coerce targeted states to change political course,⁸ but also third states. This contribution focuses on the latter type of sanctions. As secondary sanctions limit third states’ sovereignty to freely conduct their external economic relations with other states, they raise deep legitimacy questions. They also raise the question as to how third states could respond to mitigate, or even neutralize, the im- pact of secondary sanctions.

This contribution approaches secondary sanctions from a public international law perspective. We ascertain to what extent such sanctions are in keeping with the customary international law of state jurisdiction, as well as with multilateral and bilateral conventions concluded by the targeting and third states. In addition, we examine what judicial and non-judicial mechanisms third states can resort to in order to contest the legality of secondary sanctions, or to counter their adverse effects.

While the compatibility of US secondary sanctions with international law is not a new topic in legal scholarship,⁹ we carry out a fine-grained legal analysis, distinguishing between various types of sanctions, and reviewing their international legality in light of international norms drawn from multiple legal regimes (the law of jurisdiction, trade law, monetary law, etc). The novelty of this contribution also resides in its kaleidoscopic view of possible remedies to challenge US secondary sanc- tions. While scholarly analyses exist regarding discrete judicial and non-

Sanctions’ (Atlantic Council, 31 May 2019)<www.atlanticcouncil.org/blogs/new-atlanticist/us-con gress-would-undermine-transatlantic-alliance-with-nord-stream-2-sanctions>.

8 On the contestation of primary sanctions on grounds of perceived coercion, in particular by China, Russia, member states of the Non-Aligned Movement, and even the UN General Assembly (UNGA) where the latter states are dominant, see: Declaration of the Russian Federation and the People’s Republic of China on the Promotion of International Law (25 June 2016); Joint Communique´ of the 14th Meeting of the Foreign Ministers of the Russian Federation, the Republic of India and the People’s Republic of China (19 April 2016); Asian African Legal Consultative Organization (AALCO), ‘Extraterritorial Application of National Legislation: Sanctions Imposed against Third Parties’ (Doc No AALCO/53/TEHRAN/2014/SD/S6, 18 September 2014) 22. For an overview of relevant resolutions of the UNGA, see: A Hofer, ‘The Developed/Developing Divide on Unilateral Coercive Measures: Legitimate Enforcement or Illegitimate Intervention?’

(2017) 16 Chinese Journal of International Law 175, 186–89. This attitude towards sanctions shows a clear divide between the West and the non-West, but, as Alexandra Hofer has argued, relevant res- olutions of the UNGA condemning unilateral sanctions do not seem to satisfy the required criteria to establish a new customary rule prohibiting such sanctions: ibid 212. In this context, we do not pronounce on the scope of the principle of non-intervention, nor on the legality of third-party coun- termeasures. On non-intervention and economic coercion, see also A Tzanakopoulos, ‘The Right to Be Free from Economic Coercion’ (2015) 4 Cambridge Journal of International and Comparative Law 616.

9 For a somewhat dated but extensive discussion of (US) secondary sanctions from a public international law perspective, see C Ryngaert, ‘Extraterritorial Export Controls (Secondary Boycotts)’ (2008) 7 Chinese Journal of International Law 625; JA Meyer, ‘Second Thoughts on Secondary Sanctions’ (2009) 30 University of Pennsylvania Journal of International Law 905.

judicial remedies, such as the EU Blocking Statute or the security excep- tion under the law of the World Trade Organization (WTO),¹⁰no schol- arly publication has so far addressed the range of potential remedies that may be available.

The geographic focus of this contribution is on economic relations be- tween the US and the EU. Not only are the US and the EU among the world’s largest trading blocs/nations,¹¹ they also ‘have the largest bilat- eral trade and investment relationship and enjoy the most integrated economic relationship in the world’.¹² Moreover, as the EU and US economies have become ever more interdependent, the EU has become uniquely vulnerable to the imposition of US secondary sanctions, which restrict trade between the EU and third states. For instance, after the re- instatement of US secondary sanctions against Iran in 2018, European investments and transactions with Iran,¹³worth billions of US dollars, were unwound, arguably out of fear of falling foul of US sanctions (eg Renault and Citroe¨n’s investments in a joint venture with Iranian part- ners, Scania’s establishment of a bus factory in Iran, and a technology transfer agreement between Siemens and an Iranian firm).¹⁴

Our focus on the transatlantic relationship means that we zoom in, in particular, on remedial mechanisms that are accessible to, or otherwise involve, the EU and/or its Member States, such as the WTO dispute- settlement mechanism, domestic or regional blocking statutes, or special purpose vehicles facilitating trade between states. It remains the case, however, that many if not most of these mechanisms can also be relied on (or be set up by) other states. Accordingly, the analysis has wider geographic application.

Methodologically, we espouse a largely doctrinal approach, consisting of a close analysis of state practice, legal texts such as treaties, case law, and legal literature. However, we also engage in a critical evaluation of relevant rules and mechanisms, mapping implementation difficulties, procedural or jurisdictional obstacles, and (unintended) consequences.

For that purpose, we have also carried out limited empirical research, notably by conducting semi-structured interviews with key,

10 See, eg, C Van Haute, S Nordin, and G Forwood, ‘The Reincarnation of the EU Blocking Regulation: Putting European Companies Between a Rock and a Hard Place’ (2018) 13 Global Trade and Customs Journal 496; RP Alford, ‘The Self-Judging WTO Security Exception’ (2011) Utah Law Review 697. See also the references in note 295.

11 European Commission, ‘EU Position in World Trade’<http://ec.europa.eu/trade/policy/eu- position-in-world-trade/>.

12 European Commission, ‘Countries and Regions: United States’<http://ec.europa.eu/trade/

policy/countries-and-regions/countries/united-states/>.

13 After the signing of the Joint and Comprehensive Plan of Action (JCPOA), the international community lifted nuclear-related sanctions against Iran, after which trade with Iran could resume.

See European Council and Council of the EU, ‘Joint Comprehensive Plan of Action and Restrictive Measures’<www.consilium.europa.eu/en/policies/sanctions/iran/jcpoa-restrictive-measures/>.

14 For an overview, see US Congressional Research Service, ‘Iran Sanctions’ (Report RS20871, updated 15 November 2019) 50–51 (giving an overview of EU companies’ divestment as a result of the reinstatement of US sanctions).

information-rich elite participants, such as lawyers specializing in sanc- tions law and compliance, and government and EU officials.

This contribution consists of seven further parts. Part II briefly intro- duces the concept of economic sanctions, and in particular the distinc- tion between primary and secondary sanctions as understood here. As secondary sanctions have an extraterritorial dimension, Part III reviews their compatibility with the customary international law principles of state jurisdiction (such as territoriality, nationality, and security). The general law of jurisdiction is not, however, the only area of public inter- national law that is relevant to assessing the legality of secondary sanc- tions. Part IV analyses the extent to which secondary sanctions are compatible with international obligations arising from treaties, in par- ticular treaties concluded in the context of the WTO, but also bilateral treaties of friendship, commerce, and navigation (FCN), as well as bilat- eral investment treaties (BITs).¹⁵ Parts V, VI, and VII proceed to dis- cuss how third states and the EU could challenge secondary sanctions.

Part V examines the availability of judicial mechanisms, while Parts VI and VII tackle the availability of non-judicial mechanisms. Part VI con- centrates on one specific mechanism, the EU Blocking Statute, which was reactivated in 2018 to counter the effects of reinstated US secondary sanctions, particularly those targeting Iran. Part VII gives a non- exhaustive overview of other non-judicial mechanisms to which states can resort, such as de-dollarization, setting up a special purpose vehicle, and taking retaliatory measures. Part VIII concludes.

II. SECONDARYSANCTIONS: DEFINING THECONCEPT

Economic sanctions are essentially a political tool.¹⁶ They are used to force sanctions targets to fall in line with the targeting state’s political

15 Note that this contribution does not address the compatibility of secondary sanctions with international human rights treaties or other instruments protecting human rights, without, however, denying the validity of this perspective. Especially in Europe, there is a rich body of case law on the compatibility of targeted sanctions, notably asset freezes and travel restrictions imposed on natural and legal persons suspected of supporting terrorism, with human rights protections: see, eg, Joined Cases C-402/05P and C-415/05PYassin Abdullah Kadi and Al Barakaat International Foundation v Council of the European Union and Commission of the European Communities[2008] ECR I-06351;

Case of Al-Dulimi and Montana Management Inc v SwitzerlandApp no 5809/08 (ECtHR, 21 June 2016). The human rights impact of secondary sanctions has also been addressed, for instance, by the successive UN special rapporteurs on unilateral coercive measures: see, eg, UNHRC, ‘Report of the Special Rapporteur on the Negative Impact of Unilateral Coercive Measures on the Enjoyment of Human Rights’ (30 August 2018) UN Doc A/HRC/39/54, paras 7, 11, 25, 35–37; ‘UN rights expert urges Governments to save lives by lifting all economic sanctions amid COVID-19 pandemic’ (3 April 2020) <www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID¼25769&

LangID¼E>(drawing attention to the adverse impact of sanctions on targeted countries’ efforts to confront the COVID-19 pandemic).

16 PS Bechky, ‘Sanctions and the Blurred Boundaries of International Economic Law’ (2018) 83 Missouri Law Review 1, 2; AF Lowenfeld, ‘Trade Controls for Political Ends: Four Perspectives’

(2003) 4 Chinese Journal of International Law 355.

preferences, relating to, eg, disarmament, human rights compliance, or even choice of regime. They can be taken against both states and non- state actors (eg terrorist groups)¹⁷and take the form of trade, finance, in- vestment, and asset restrictions.

A conceptual distinction is made between primary and secondary sanctions. Primary sanctions prohibit or condition economic relations between the territory of the targeting state (including economic agents who find themselves in that territory) and the state targeted by the sanc- tions, or between nationals of the targeting state and the target state.¹⁸ Secondary sanctions, in contrast, apply to relations between a third state and third-country operators on the one hand, and the (foreign) sanctions target on the other. Secondary sanctions have an extraterritorial aspect and thus are potentially suspect under international law. They are the focus of this contribution.

In US literature, secondary sanctions have been defined as ‘retali- atory’ sanctions that ‘do not impose monetary penalties, but rather seek to cut off foreign parties from access to the US financial and commercial markets if these entities conduct business in a manner considered detri- mental to US foreign policy’.¹⁹According to this literature, ‘[w]hile pri- mary sanctions may be enforced by criminal prosecution or civil fines, secondary sanctions are enforced by economic measures’.²⁰In this con- tribution, however, we adopt a broader notion of secondary sanctions that includes all measures which, in essence, aim to regulate economic transactions between a third state and a target state.²¹ This notion also includes sanctions whichdoimpose monetary penalties on foreign enti- ties. US literature may consider such sanctions to beprimary sanctions, as they are allegedly triggered by the presence of a US nexus and thus appear to govern economic relations between the US and target states.²² However, as this US (territorial) nexus is typically rather tenuous, eg, denominating a contract in US dollars, or re-exporting US technol- ogy,²³ such ‘primary’ sanctions essentially regulate foreign conduct by

17 On the US Treasury’s counterterrorism sanctions, see US Department of the Treasury,

‘Counter Terrorism Sanctions’ <www.treasury.gov/resource-center/sanctions/programs/pages/ter ror.aspx>.

18 See, eg, art 49 of Council Regulation (EU) 267/2012 of 23 March 2012 concerning restrictive measures against Iran and repealing Regulation (EU) No 961/2010 [2012] OJ L88/1.

19 M Rathbone, P Jeydel, and A Lentz, ‘Sanctions, Sanctions Everywhere: Forging a Path through Complex Transnational Sanctions Laws’ (2013) 44 Georgetown Journal of International Law 1055, 1112–13.

20 Bechky, ‘Sanctions and the Blurred Boundaries of International Economic Law’, 10.

21 See also, from an Indian perspective, A Rej and A Tirkey, ‘Beyond JCPOA – Secondary Sanctions, Projects and Investments’ (Observer Research Foundation (India), 20 July 2018)<www.

orfonline.org/expert-speak/42641-jcpoa-secondary-sanctions-projects-investments/> (defining, in the context of US sanctions targeting Iran, ‘extraterritorial’ or ‘secondary’ sanctions as sanctions which ‘penalise third-country firms that are involved in Iran’s energy sector’).

22 Bechky, ‘Sanctions and the Blurred Boundaries of International Economic Law’, 11 (‘the ex- tension of OFAC rules to foreign branches and (sometimes) subsidiaries of U.S. persons is part of the primary sanctions’); H Hurd, ‘US Reimposes the Second Round of Iran Sanctions’ (Lawfare, 9 November 2018)<www.lawfareblog.com/us-reimposes-second-round-iran-sanctions>.

foreign persons. Thus, on closer inspection, they could also be charac- terized as secondary in nature.²⁴

We consider the term ‘secondary sanctions’ to be largely interchange- able with ‘extraterritorial sanctions’.²⁵Still, secondary sanctions are not necessarily an exercise of ‘extraterritorial jurisdiction’. As the targeting state may formally ground its sanctions authority on the existence of a territorial connection, such as the use of the currency of the targeting state, or the use of its technology, secondary sanctions may appear to be justified under the territoriality principle. What is materially relevant for present purposes, however, is whether such sanctions in factaim to regulate foreign conduct, ie, relations between a third state and the tar- geting state, regardless of territorial connections to the targeting state.

The incentive to impose secondary sanctions arises where primary sanctions fail to effect the envisaged behavioural change in the target state. If third states are allowed to maintain their economic relations with the target state, and economic operators from the sanctioning state are not, the former could supplant the presence of the latter (a process known as ‘backfilling’), thereby undermining primary sanctions.²⁶ Thus, if primary sanctions also extend to economic relations between third states and the target state, their impact is likely to increase.²⁷ Secondary sanctions could thus be characterized as anti-circumvention measures which prevent third states and economic operators from going about their business with target states as usual. They serve as force mul- tipliers for primary sanctions.

From a political economy perspective, secondary sanctions could be welfare-enhancing for third states insofar as the latter value compliance by the target state with the goals and regulations set by the regulating state (eg nuclear disarmament), even if their economic operators do not willingly participate in these sanctions.²⁸However, when third states do not value compliance (eg because, unlike the targeting state, they do not

23 See Part III.B.

24 Compare also with the UK Financial Markets Law Committee (FMLC), ‘U.S. Sanctions and the E.U. Blocking Regulation: Issues of Legal Uncertainty’ (June 2019) section 2.3, note 4 (doubting whether a settlement between OFAC and Singapore-based companies that was jurisdic- tionally based on US dollars being processed through the US financial system qualified as a primary sanction).

25 cf Bechky, ‘Sanctions and the Blurred Boundaries of International Economic Law’, 9 (‘the concept of “extraterritorial sanctions” should be compared with its cousin, “secondary sanctions.”

Extraterritorial sanctions govern conduct by persons located outside the sending state’), but stating at 11 that ‘[s]econdary sanctions are extraterritorial, though extraterritorial sanctions need not be secondary’, there citing the practice of extraterritorial ‘primary’ sanctions, which we consider sec- ondary in nature.

26 Rathbone, Jeydel, and Lentz , ‘Sanctions, Sanctions Everywhere’, 1084.

27 EV McLean and T Whang, ‘Friends or Foes? Major Trading Partners and the Success of Economic Sanctions’ (2010) 54 International Studies Quarterly 427. In the case of Iran, the process of backfilling led to the adoption of the Iran Sanctions Act in 1996, which provides for secondary sanctions: Iran Sanctions Act of 1996 (as amended by Iran Sanctions Extension Act, Pub L No 114–

277 (2016)).

28 B Han, ‘The Role and Welfare Rationale of Secondary Sanctions: A Theory and a Case Study of the US Sanctions Targeting Iran’ (2018) 35 Conflict Management and Peace Science 474.

consider that the target state poses a threat), they will consider such sanctions to be welfare-decreasing, and to impinge on their sovereign right to authorize, or even encourage, trade with the target. In legal terms, such states may consider secondary sanctions to violate the prin- ciple of non-intervention, and to be extraterritorial in nature, in viola- tion of constraints imposed by the international law of jurisdiction, in addition to other potential breaches.

Not all secondary sanctions are necessarily internationally unlawful, however, even if they may severely restrict foreign states’ political sover- eignty to conduct their international economic relations as they see fit.²⁹ There is no doubt that US secondary sanctions have a major impact on foreign states and non-US persons, as they seriously complicate—or sometimes render nearly impossible—economic and financial transac- tions between foreign states and persons on the one hand and the foreign sanctions targets on the other. However, adverse economic impacts do not equal international illegality. It is entirely possible that some second- ary sanctions adversely affect the economic and financial interests of for- eign states and persons without being internationally unlawful.³⁰

III. THELEGALITY OFSECONDARYSANCTIONS AND THECUSTOMARY

INTERNATIONALLAW OFJURISDICTION

This part ascertains what types of secondary sanctions engage, and pos- sibly violate, the customary international law of jurisdiction, and which do not. It is argued that sanctions which limit foreign persons’ access to the targeting state’s economic or financial system fall within that state’s territorial sovereignty, and in principle do not raise concerns under the law of jurisdiction. However, sanctions which are more far-reaching, such as fines, are more problematic. As will be explained in this part, a

29 On the importance of safeguarding EU sovereignty in the face of US extraterritorial sanc- tions, without necessarily considering such sanctions to be incompatible with international law, see, eg, P Bonnecarre`re, ‘Rapport d’information fait au nom de la commission des affaires europe´ennes (1) sur l‘extraterritorialite´ des sanctions ame´ricaines’ (Se´nat 4 October 2018) 7.

30 Interestingly, the British Protection of Trading Interests Act 1980, which was adopted to counter US ‘extraterritorial’ sanctions, primarily in the antitrust field, limited itself to stating that

‘those measures, in so far as they apply or would apply to things done or to be done outside the terri- torial jurisdiction of that country by persons carrying on business in the United Kingdom,are dam- aging or threaten to damage the trading interests of the United Kingdom’ without considering such measures ipso facto internationally unlawful (Protection of Trading Interests Act 1980, s 1(1)(b) (emphasis added)). In contrast, art 1 of Council Regulation (EC) 2271/96 of 22 November 1996 pro- tecting against the effects of the extra-territorial application of legislation adopted by a third coun- try, and actions based thereon or resulting therefrom [1996] OJ L309/1 (the 1996 EU Blocking Statute), which ‘provides protection against and counteracts the effects of the extraterritorial appli- cation’ of foreign law, is premised on the incompatibility of such application with international law (ibid, preamble). Bismuth, however, has implied that the Blocking Statute was enacted to protect EU economic interests rather than to protect the international legal order: see R Bismuth, ‘Pour une appre´hension nuance´ de l’extraterritorialite´ du droit ame´ricain – Quelques re´flexions autour des pro- ce´dures et sanctions visant Alstom et BNP Paribas’ (2015) 61 Annuaire Franc¸ais de Droit International Law 785, 803.

substantial connection (nexus) between the sanctioned activity and the targeting state may often be lacking.

The analysis in this part is based on the concept of (state)jurisdiction under customary international law. The extent to which secondary sanc- tions engage, and possibly violate, more specific obligations under inter- national law, in particular as laid down in WTO Agreements and bilateral trade and investment agreements, are addressed in Part IV.

Secondary sanctions may also violate some general principles of inter- national law, in particular the principle of non-intervention³¹ and the principle (or prohibition) of abuse of rights (abus de droit).³²These prin- ciples are vague, however, and it is unclear exactly how they might be applied in respect of secondary sanctions. For instance, precisely when an intervention unlawfully impinges on a foreign state’s sovereignty is notoriously difficult to define.³³Moreover, the principles of jurisdiction already constitute a specific manifestation of the principle of non- intervention. Insofar as secondary sanctions may potentially constitute an abuse of rights,³⁴in particular in cases of arbitrary or disproportion- ate application of sanctions legislation,³⁵it remains in the eye of the be- holder what is arbitrary or disproportionate in a given case—an issue which has long dogged the related principle of jurisdictional reasonableness.³⁶

31 See AALCO, ‘Extraterritorial Application of National Legislation: Sanctions Imposed against Third Parties’ (considering primaryandsecondary sanctions to violate the principle of non- intervention). But see Tzanakopoulos, ‘The Right to Be Free from Economic Coercion’, 633 (ques- tioning whether there is a right of states to be free from economic coercion).

32 A Kiss, ‘Abuse of Rights’, MPEPIL Online (last updated December 2006) para 6.

33 The ICJ has ruled that an intervention is unlawful if it is ‘bearing on matters in which each State is permitted, by the principle of State sovereignty, to decide freely’:Case Concerning Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v United States of America) (Merits) [1986] ICJ Rep 14, para 205. This definition may just beg the question. For instance, does a denial of access to US markets for non-US companies violate these companies’ home states’ right to decide freely on sovereign matters?

34 Kiss, ‘Abuse of Rights’, para 6.

35 It is possible that the vagueness of some terms in US sanctions legislation (such as ‘persons’

and ‘significant transactions’, as discussed below) may lead to arbitrary application of sanctions, and thus abuse of rights. Also, certain enforcement measures, eg extremely large settlements, may be disproportionate to the aim pursued, and thus constitute an abuse of rights. Foreign stateshavecom- plained about the disproportionality of settlement amounts. See, notably, French President Hollande protesting, on grounds of proportionality, an 8.9 billion US dollar fine imposed on French bank BNP Paribas for violations of US sanctions legislation: J Treanor, ‘BNP Paribas Expects

“Heavy Penalty” for Sanctions Violations’The Guardian(30 June 2014)<www.theguardian.com/

business/2014/jun/30/bnp-paribas-fine-penalty-sanctions>. On a state—the Russian Federation—

protesting the extraterritorial reach of US anti-bribery legislation on grounds of arbitrariness, see K Daugirdas and J Davis Mortenson, ‘Contemporary Practice of the United States relating to International Law – US Department of Justice Charges Leaders of FIFA, Affiliate Soccer Organizations, and Sports Marketing Companies in 47-Count Indictment’ (2015) 109 AJIL 643, 674 (denouncing the US prosecution of FIFA leaders as ‘yet another example of arbitrary extraterri- torial enforcement of US law’).

36 On reasonableness, see C Ryngaert,Jurisdiction in International Law(2^ndedn, OUP 2015) chapter 5; C Ryngaert and M Vagias (eds), ‘Jurisdictional Reasonableness’ (2019) 62 Questions of International Law (Zoom In) 1.

In terms of structure, this part distinguishes between the two types of secondary sanctions that are imposed: restrictions of access to the US and to US markets (Section A), and measures that go beyond such restrictions and involve civil and criminal penalties for engaging in eco- nomic transactions with sanctions targets (Section B). It is argued that the former type of secondary sanctions is presumptively lawful given its strong connection to US territory. The latter type, however, is problem- atic under the customary international law of jurisdiction, as the juris- dictional triggers used by the US are only based on a tenuous connection to the US.

A. Secondary sanctions as access restrictions

A considerable number of US secondary sanctions areaccess restrictions.

Take, for instance, the best-known country-specific sanctions pro- gramme of the US: the Iran sanctions. Under the Iran Sanctions Act, the US Secretary of State or Secretary of the Treasury can impose on non-US persons ‘menu-based’ sanctions. More specifically, they are required to impose at least five out of the following twelve available sanctions:

1. denial of Export-Import Bank loans, credits, or credit guarantees for U.S. exports to the sanctioned entity

2. denial of licenses for the U.S. export of military or militarily useful technology to the entity

3. denial of U.S. bank loans exceeding $10 million in one year to the entity

4. if the entity is a financial institution, a prohibition on its service as a primary dealer in U.S. government bonds; and/or a prohibition on its serving as a repository for U.S. government funds

5. prohibition on U.S. government procurement from the entity 6. prohibitions in transactions in foreign exchange by the entity

7. prohibition on any credit or payments between the entity and any U.S.

financial institution

8. prohibition of the sanctioned entity from acquiring, holding, using, or trading any U.S.-based property which the sanctioned entity has a (fi- nancial) interest in

9. restriction on imports from the sanctioned entity, in accordance with the International Emergency Economic Powers Act

10. a ban on a U.S. person from investing in or purchasing significant amounts of equity or debt instruments of a sanctioned person

11. exclusion from the United States of corporate officers or controlling shareholders of a sanctioned firm

12. imposition of any of the ISA sanctions on principal offices of a sanc- tioned firm³⁷

37 US Congressional Research Service, ‘Iran Sanctions’, 17. This overview consolidates the sanctions imposed under the Iran Sanctions Act, originally the Iran and Libya Sanctions Act, Pub

These sanctions are an attractive enforcement tool as, unlike the puni- tive measures discussed in Section B, they can almost immediately be applied.³⁸Jurisdictionally speaking, access restrictions create obligations for US persons,³⁹ and regulate activities that occur in the US and in- volve US persons as counterparties. They could be justified under a combined application of the territoriality and nationality principles, even if their ultimate addressees are non-US persons.⁴⁰ Thus, Jeffrey Meyer argues, ‘[w]hen secondary sanctions are terrinationally restricted to the regulation of U.S. nationals with respect to their non- governmental acts within the United States, then these sanctions should be viewed as presumptively permissible as a matter of customary juris- dictional law’.⁴¹ More fundamentally, from the perspective of non-US persons, most of these measures—denial of access to the US financial system, access to US markets, or access to the US for individual per- sons—merely amount to the denial of privileges.⁴²As international law does not entitle foreign persons to financial, economic, or physical access to the US, such measures do not, in principle, raise jurisdictional problems.

Measures regulating access to a state’s territory, including access to economic facilities based in the territory, are grounded on the principle that states, in the exercise of their territorial sovereignty, have consider- able discretionary power to control their borders.⁴³Recently, states have

L No 104-172 (1996), the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, Pub L No 111-195 (2010), and the Iran Threat Reduction and Syria Human Rights Act, Pub L No 112-158 (2012).

38 S Sultoon and J Walker, ‘Secondary Sanctions’ Implications and the Transatlantic Relationship’ (Atlantic Council Issue Brief, September 2019) 3.

39 O Moehr, ‘Secondary Sanctions: A First Glance’ (Atlantic Council, 6 February 2018): ‘US secondary sanctions legally target US persons and not directly third parties’.

40 Rathbone, Jeydel, and Lentz, ‘Sanctions, Sanctions Everywhere’, 1071, conceding, however, that ‘many U.S. trading partners did not view that distinction as material, and retaliated against the United States for what they considered to be unjustified extraterritorial measures that infringed on their sovereign economic rights’.

41 Meyer, ‘Second Thoughts on Secondary Sanctions’, 967.

42 Rathbone, Jeydel, and Lentz , ‘Sanctions, Sanctions Everywhere’, 1071. For a recent example of a denial of entry to the US (a travel ban), see ‘Statement by Melia Hotels International’ (5 February 2020) <www.meliahotelsinternational.com/en/newsroom/our-news/statement-melia- hotels-international-helms-burton>(announcing that its CEO had been denied entry to the US in connection with Melia’s alleged violation of the Helms-Burton Act, ie the ‘extraterritorial’ Cuba boycott. The statement suggests that similar denials of entry were communicated to ‘more than fifty companies with interests in Cuba’).

43 In 2009, the ICJ stated in its judgment inDispute regarding Navigational and Related Rights (Costa Rica v Nicaragua)(Judgment) [2009] ICJ Rep 213, para 113, that ‘[t]he power of a State to issue or refuse visas is a practical expression of the prerogative which each State has to control entry by non-nationals into its territory’. Regarding access of aliens, see, eg, T Balzacq and S Carrera,

‘Migration, Borders and Asylum. Trends and Vulnerabilities in EU Policy’ (Centre for European Policy Studies, August 2009) 55–56 (discussing the tension between the EU and member states regarding the jus excludendi andincludendi regarding aliens). The right to control borders also extends to the right to control access to airspace. This right is laid down in treaty law: see art 6 of the Convention on International Civil Aviation (adopted 7 December 1944, entered into force 4 April 1947) 15 UNTS 295. States do not have absolute discretion, however. For instance, the admission of aliens is subject to international human rights and international refugee law, as well as some

not refrained from using their prerogatives in respect of border control.

For instance, President Trump has seriously restricted travel to the US from designated countries,⁴⁴some Arab states have refused entry to per- sons with passport stamps from Israel,⁴⁵ and Israel has denied entry to supporters of the Boycott, Divestment and Sanctions movement.⁴⁶ In respect of economic sanctions consisting of entry denials applied to indi- viduals, Vaughan Lowe has stated that ‘[t]here is no general legal objec- tion, treaty commitments apart, to the United States barring whomsoever it chooses from entering its territory’.⁴⁷ Gerhard Hafner has similarly argued that entry denials are compatible with general inter- national law, as states are not required to allow entry to specific persons.⁴⁸

States’ prerogatives to control access of aliens to their territory are not limited to the access of individuals, but also extend to visiting vessels and corporations. Thus, it is accepted that states have discretion regard- ing which vessels are denied entry to their ports, including for reasons related to their extraterritorial conduct (eg engaging in illegal, unreport- ed, or unsustainable fishing on the high seas).⁴⁹After all, foreign vessels have no right to enter ports under customary international law,⁵⁰ just like aliens have no right to enter a state’s territory unless specific inter- national agreements have been concluded which allow for a right of entry. Similarly, corporations have no right of access to foreign mar- kets—eg to tap foreign capital markets, to bid for contracts (eg public procurement) or to acquire property in foreign territory⁵¹—again, unless specific agreements have been concluded which do grant such rights

regional supranational norms, eg EU law. On theacquisof European migration law see, eg, P Boeles and others,European Migration Law(2^ndedn, Intersentia 2014).

44 For instance, ‘Protecting the Nation from Foreign Terrorist Entry into the United States’

Exec Order No 13,780, 82 Fed Reg 13,209 (9 March 2017), signed by US President Trump in 2017, limits travel to the US from Iran, Libya, Syria, Yemen, Somalia, North Korea, and Venezuela.

Presidential Proclamation 9645, which expands on this executive order was upheld by the US Supreme Court in Trump v Hawaii 201 L Ed 2d 775 (2018). This ‘travel ban’ may, however, violate US obligations under international human rights and international refugee law: see HH Koh, ‘The Trump Administration and International Law’ (2017) 56 Washburn Law Journal 413.

45 ‘Israeli Passport Stamp – What to Know’ (Tourist Israel: The Guide)<www.touristisrael.

com/israeli-passport-stamp-what-to-know/>.

46 Amendment No 27 to the Entry Into Israel Law (No 5712-1952, passed 6 March 2017), which prohibits the entry into Israel of any foreigner who makes a ‘public call for boycotting Israel’

or ‘any area under its control’ with a ‘reasonable possibility’ of succeeding.

47 AV Lowe, ‘US Extraterritorial Jurisdiction: the Helms-Burton and D’Amato Acts’ (1997) 46 ICLQ 378, 385.

48 G Hafner, ‘Vo¨lkerrechtliche Grenzen und Wirksamkeit von Sanktionen gegen Vo¨lkerrechtssubjekte’ (2016) 76 Zao¨RV 391, 397.

49 AN Honniball, ‘Extraterritorial Port State Measures’ (PhD thesis, Utrecht University 2018) section 2.5.2.

50 Nicaragua, paras 213-14; A Boyle, ‘EU Unilateralism and the Law of the Sea’ (2006) 21 International Journal of Marine and Coastal Law 15, 20 (arguing that ‘it is implicit in UNCLOS Articles 25, 211(3) and 255 that states are entitled to regulate or deny access to ports’).

51 See also JJ Forrer, ‘Secondary Economic Sanctions: Effective Policy or Risky Business?’

(Atlantic Council Issue Brief, May 2018) 5.

(which has, for instance, occurred in the EU).⁵²It is immaterial in this re- spect that access denials relate to the corporation’s extraterritorial activities.

Ultimately, the targeting state is merely taking away the corporation’spriv- ilege of entering the state’s territory and using or offering services there.

Thus, Re´gis Bismuth argues that excluding a corporation from US markets or revoking its bank licence is a sanction that is strictly territorial, even if the underlying prohibition may have an extraterritorial reach.⁵³

The US is perhaps the only state which so vigorously issues denials and prohibitions in the context of secondary sanctions, but it is to be kept in mind that many other states have a far less open economy in the first place, and continue to impose stringent conditions on the access of foreign operators to their territory or markets (to the extent compatible with applicable treaty arrangements).⁵⁴As EU practice (eg in the envir- onmental field) shows, such conditions may also relate to extraterritorial activity.⁵⁵ Moreover, there is non-US—in this case Arab—practice of states enacting secondary sanctions consisting of denials and prohibi- tions. Since 1948, the League of Arab States has, at least on paper, boy- cotted the State of Israel, a boycott which also prohibits non-Israeli persons from entertaining economic relations with Israel. This boycott is enforced through a prohibition on member states of the Arab League

52 Substantive EU law is very much based on the ‘four freedoms’, the free movement of goods, persons, services, and capital across intra-EU borders: see C Barnard,Substantive EU Law(5^thedn, OUP 2016).

53 Bismuth, ‘Pour une appre´hension nuance´ de l’extraterritorialite´ du droit ame´ricain’, 789.

54 For rankings, see International Chamber of Commerce, ‘Open Markets Index 2017’

<https://iccwbo.org/publication/icc-open-markets-index-2017/>and Heritage Foundation, ‘Index

of Economic Freedom 2019’<www.heritage.org/index/ranking>(which includes ‘open markets’ as a parameter). See, eg, China National Development and Reform Commission, ‘Negative List for Market Access (2018 Version)’, categorizing a considerable number of industries as either ‘prohib- ited’ or ‘restricted’. For investment restrictions in Russia, see Herbert Smith Freehills, ‘Legal Guide for Foreign Investors in Russia’ (4^thedn, February 2019).

55 See, eg, Directive 2008/101/EC of the European Parliament and of the Council of 19 November 2008 amending Directive 2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community [2009] OJ L8/3; Directive 2004/101/EC of the European Parliament and of the Council of 27 October 2004 amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol’s project mechanisms [2004] OJ L338/18 and Commission Regulation (EU) No 550/2011 of 7 June 2011 on determining, pursuant to Directive 2003/87/EC of the European Parliament and of the Council, certain restrictions applicable to the use of international credits from projects involving industrial gases [2011] OJ L149/1; Directive 2009/

29/EC of the European Parliament and of the Council of 23 April 2009 amending Directive 2003/87/

EC so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community [2009] OJ L140/63; Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and amending Directive 2009/16/EC [2015] OJ L123/55; and Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market [2010] OJ L295/

23, all of which have extraterritorial aspects, as discussed in N Dobson, ‘Extraterritorial Climate Protection Under International Law: A Jurisdictional Analysis of EU Unilateralism’ (PhD thesis, Utrecht University 2018) chapter 2.3. These measures ‘incorporate an extraterritorial element through making market access conditional, directly or indirectly, on conduct of foreign operators or suppliers occurring abroad’. Their effect is ‘to impose an extracoston foreign producers’ (original emphasis, ibid 62).

and their nationals entertaining economic relations with blacklisted firms. The boycott is unevenly enforced,⁵⁶ but the important point is that enforcement works through the denial of economic privileges and, consequently, falls within states’ sovereign prerogatives. It is conspicu- ous in this respect that, while the US has attempted to counteract the Arab League’s secondary boycott by passing anti-boycott legislation,⁵⁷ it has not characterized it as a violation of international law.⁵⁸ In add- ition to the Israel boycott, there is also recent practice available of Arab states denying port entry to foreign vessels on the basis of extraterritorial activity. In 2017, a number of states which had fallen out with Qatar—

notably the United Arab Emirates, Bahrain, and Saudi Arabia—closed their seaports not only to Qatari-flagged and owned vessels, but also to all vessels coming from or going to Qatar.⁵⁹Such sanctions are of a sec- ondary nature as they target economic relations between foreign states (ie Qatar and a third state whose vessels have previously visited Qatar), even if they are territorially enforced. As Honniball points out, ‘[t]his practice is best seen as the withholding of port privileges to foreign ves- sels and, subject to treaty arrangements, a foreign state has no entitle- ment under general international law to those privileges’.⁶⁰ Such practice demonstrates that states’ sovereignty regarding the withholding of privileges of (territorial) access has not shrunk.

All this is not to deny the far-reaching impact of secondary sanctions consisting of access restrictions. Notably, the prohibition of ‘U-turn transactions’ regarding Iran, enacted by the US Treasury in 2008, has had a major impact on non-US banks. U-turn transactions are ‘transfers designed to dollarize transactions through the U.S. financial system for the direct or indirect benefit’ of sanctioned persons,⁶¹ eg Iranian banks or other persons in Iran, or the Government of Iran. U-turn transac- tions regarding Cuba were initially allowed,⁶² but have now also been prohibited.⁶³ As international energy contracts are typically issued in dollars, foreign banks financing such contracts normally have to rely on a US correspondent account to pay for goods in US dollars, thereby

56 MA Weiss, ‘Arab League Boycott of Israel’ (US Congressional Research Service, Report RL33961, 25 August 2017).

57 For US anti-boycott export regulations, see 15 CFR § 760.1ff.

58 cf s 7035 of the Consolidated and Further Continuing Appropriations Act, Pub L No 115-31 (2017), limiting itself to stating that the secondary boycott is ‘an impediment to peace in the region and to U.S. investment and trade’.

59 See, eg, Abu Dhabi Ports, ‘Chief Harbour Master Direction: Restriction to Vessels and Cargo Coming from / Going to Qatari Ports’ (CHM Direction No 02/17, 5 June 2017).

60 A Honniball, ‘Port State Jurisdiction Beyond Oceans Governance: The Closure of Ports to Qatar in the 2017 “Gulf Crisis”’ (EJIL:Talk!, 3 July 2017)<www.ejiltalk.org/port-state-jurisdic tion-beyond-oceans-governance-the-closure-of-ports-to-qatar-in-the-2017-gulf-crisis/>.

61 Iranian Transactions Regulations, 73 Fed Reg 66,541 (10 November 2008).

62 Cuban Assets Control Regulations, 31 CFR § 515.584.

63 See ‘President Trump Ramps Up Cuba Sanctions Changes – Allows Litigation against Non- U.S. Companies Conducting Business in Cuba’ (Gibson Dunn Lawyers, 1 May 2019)<www.gibson dunn.com/wp-content/uploads/2019/05/president-trump-ramps-up-cuba-sanctions-allows-litiga tion-against-non-us-companies-conducting-business-in-cuba.pdf>3.

accessing the US financial system.⁶⁴The ban on accessing the US finan- cial system cripples foreign trade with sanctioned countries, and has been instrumental in European firms winding down business with coun- tries like Iran. For many corporations, such secondary sanctions may be more effective than monetary penalties, especially if their activities are strongly connected to US markets, which may explain why the US has increasingly relied on them.⁶⁵The US has not always actually imposed such sanctions even if it has the authority to do so, and, moreover, inso- far as a foreign corporation has few links with the US they will have little effect.⁶⁶ Still, the very threat that such sanctions may be imposed,⁶⁷ in combination with open-ended formulations such as ‘the sale, supply, or transfer. . .ofsignificantgoods or services’,⁶⁸may suffice to have a major deterrent effect on economic transactions between third states (which constitute ‘sanctionable activity’, even if not formally ‘prohibited’).⁶⁹ Fear of sanctions even leads to over-compliance by non-US persons.⁷⁰

B. Secondary sanctions going beyond access restrictions

The consequences of violating secondary sanctions legislation are not limited to the mere denial of privileges of territorial access. This is espe- cially the case for US secondary sanctions. Depending on the sanctions programme, US authorities can impose draconian civil and criminal penalties on non-US firms, including non-US controlled firms, for vio- lating US sanctions legislation.⁷¹The threat of penalties has forced such

64 A financial system is a ‘system that aims at establishing and providing a regular, smooth, effi- cient and cost effective linkage between depositors and investors’, and consists of financial institu- tions, services, markets and instruments: see S Gurusamy,Financial Services and Systems(2^ndedn, McGraw-Hill 2009) 3. Economic sanctions mainly have an impact on the operation of financial pay- ment systems, especially wire-transfers. For an explanation of value transfer and key payment sys- tems of the US financial system specifically in the context of US economic sanctions, see BE Carter and R Farha, ‘Overview and Operation of U.S. Financial Sanctions, Including the Example of Iran’

(2013) 44 Georgetown Journal of International Law 903, 905–907.

65 Rathbone, Jeydel, and Lentz, ‘Sanctions, Sanctions Everywhere’, 1112.

66 ibid 1118.

67 ibid 1119.

68 Emphasis added. See, eg, ‘Reimposing Certain Sanctions with Respect to Iran’, Exec Order No 13,846, s 2: ‘Correspondent and Payable-Through Account Sanctions Relating to Iran’s Automotive Sector; Certain Iranian Persons; and Trade in Iranian Petroleum, Petroleum Products, and Petrochemical Products’.

69 See Interview with a representative of a Ministry of Finance of an EU Member State (24 April 2019). See also C Lepage, Directrice de l’international au Mouvement des entreprises de France (MEDEF) in Bonnecarre`re, ‘Extraterritorialite´ des sanctions ame´ricaines’, 54.

70 Interview with compliance officer of major European bank (16 April 2019). It is not fully clear whether overcompliance is in violation of the EU Blocking Statute: see Interview with Commission official (16 May 2019).

71 For current OFAC penalty amounts, see section V.B.2.a of appendix A to OFAC’s Economic Sanctions Enforcement Guidelines at 31 CFR part 501. For criminal penalties, see International Emergency Economic Powers Act (IEEPA), 50 USC §1705(c): ‘A person who willfully commits, willfully attempts to commit, or willfully conspires to commit, or aids or abets in the commission of, an unlawful act described in subsection (a) shall, upon conviction, be fined not more than

$1,000,000, or if a natural person, may be imprisoned for not more than 20 years, or both.’

firms to accept large settlements. In 2014, in what was the largest ever settlement regarding secondary sanctions violations, French bank BNP Paribas settled its potential liability for apparent violations of US sanc- tions regulations with US federal and state government agencies for a combined US$8.9 billion.⁷²

These penalties do not deny to the sanctioned persons privileges pre- viously granted by the US. They are more onerous and intrusive en- forcement measures that go beyond a denial of access and may result in a forfeiture of assets and even imprisonment. They do not fall within the above-discussed territorial sovereignty of the US to simply control ‘ac- cess’ to its territory.

In practice, US secondary sanctions that are based on penalties rather than access denials are grounded on four jurisdictional triggers: control by a US company, use of US technology, use of the US financial system, and trafficking in confiscated US property. The question arises whether these triggers are compatible with the customary international law of jurisdiction, as the relevant conduct that is subject to US sanctions appears to be extraterritorial. The regulated economic transactions take place between non-US persons and occur outside the US.

For an assertion of prescriptive jurisdiction to be lawful under the customary international law of jurisdiction, a substantial connection is required.⁷³ Relevant connections are territory, nationality, and secur- ity.⁷⁴Exceptionally, universal jurisdiction is possible for a limited num- ber of international crimes,⁷⁵but is not relevant here since the US does

72 BNP Paribas stood accused of systemically ‘concealing, removing, omitting, or obscuring references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions routed to or through banks in the United States between 2005 and 2012 in apparent violation of the Sudanese Sanctions Regulations, 31 C.F.R. part 538; the Iranian Transactions and Sanctions Regulations, 31 CFR, part 560 (ITSR); the Cuban Assets Control Regulations, 31 C.F.R. part 515;

and the Burmese Sanctions Regulations, 31 C.F.R. part 537’: see OFAC, ‘Treasury Reaches Largest Ever Sanctions-Related Settlement with BNP Paribas SA for $963 Million’ (30 June 2014)

<www.treasury.gov/press-center/press-releases/Pages/jl2447.aspx>. In 2018, another French bank, Socie´te´ Ge´ne´rale, reached settlement agreements with multiple US agencies and agreed to pay pen- alties totalling 1.3 billion US dollars, thereby resolving the latter’s investigations into US dollar transactions processed by the bank involving persons and entities subject to US sanctions: see Socie´te´ Ge´ne´rale, ‘Societe Generale Reaches Agreements with U.S. Authorities to Resolve U.S.

Economic Sanctions and AML Investigations’ (19 November 2018)<www.societegenerale.com/en/

Newsroom/Societe-Generale-reaches-agreements-with-US-authorities-to-resolve-US-economic- sanctions-and-AML-investigations>.

73 FAP Mann, ‘The Doctrine of Jurisdiction in International Law’ (1964) 111 Recueil des Cours de l’Acade´mie de Droit International 1, 49. On the centrality of the substantial connection test in the context of ‘extraterritorial’ sanctions context, see The Netherlands, Ministry of Foreign Affairs, ‘Beantwoording vragen van de leden Karabulut (SP) en Ploumen (PvdA) over maatregelen tegen Amerikaanse sancties tegen Iran’ (5 June 2019)<www.rijksoverheid.nl/documenten/kamer stukken/2019/06/05/beantwoording-kamervragen-over-maatregelen-tegen-amerikaanse-sancties- tegen-iran>, questions 3 and 5.

74 For the seminal document setting out the basic principles of jurisdiction (notably in the field of criminal law), see ‘Draft Convention on Jurisdiction with Respect to Crime’ (Harvard Draft) (1935) 29 AJIL (Supplement) 439.

75 L Reydams,Universal Jurisdiction: International and Municipal Legal Perspectives (OUP 2003).